Correlation Between Textron and Embraer SA
Can any of the company-specific risk be diversified away by investing in both Textron and Embraer SA at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Textron and Embraer SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Textron and Embraer SA ADR, you can compare the effects of market volatilities on Textron and Embraer SA and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Textron with a short position of Embraer SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Textron and Embraer SA.
Diversification Opportunities for Textron and Embraer SA
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Textron and Embraer is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Textron and Embraer SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embraer SA ADR and Textron is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Textron are associated (or correlated) with Embraer SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embraer SA ADR has no effect on the direction of Textron i.e., Textron and Embraer SA go up and down completely randomly.
Pair Corralation between Textron and Embraer SA
Considering the 90-day investment horizon Textron is expected to generate 2.43 times less return on investment than Embraer SA. But when comparing it to its historical volatility, Textron is 1.61 times less risky than Embraer SA. It trades about 0.11 of its potential returns per unit of risk. Embraer SA ADR is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 3,471 in Embraer SA ADR on August 30, 2024 and sell it today you would earn a total of 349.00 from holding Embraer SA ADR or generate 10.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Textron vs. Embraer SA ADR
Performance |
| Timeline |
| Textron |
| Embraer SA ADR |
Textron and Embraer SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Textron and Embraer SA
The main advantage of trading using opposite Textron and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Textron position performs unexpectedly, Embraer SA can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Embraer SA will offset losses from the drop in Embraer SA's long position.| Textron vs. Hexcel | Textron vs. Huntington Ingalls Industries | Textron vs. Curtiss Wright | Textron vs. Mercury Systems |
| Embraer SA vs. HEICO | Embraer SA vs. Vertical Aerospace | Embraer SA vs. Rolls Royce Holdings plc | Embraer SA vs. Rocket Lab USA |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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